What is GRR? GRR stands for ‘Guaranteed Rental Returns. This is a scheme that a lot of property developers offer investors in Malaysia to entice them to purchase units off their latest property launches. The developers sell the units under this scheme with the promise of ‘guaranteeing’ rental returns based off a percentage of the purchase price. (This can range anything from 2% – 7% per annum in KL) In a sense, they tell you that they will be able to manage your property for you and provide you with a tenant that will pay this fixed percentage for a certain number of years.
Just how exactly do they do this? More often than not, the developer has already priced these GRR costs into the original cost of the unit when sold. Just like those low down payment, free SPA and cashback deals that tend to capture your attention, all these special offers have already been priced into the cost of the property.
Ultimately, it doesn’t really matter how they do it though. It only matters whether it really makes the investment property a good one for you or not. You just need to be careful that you’re not sucked in to a deal that isn’t much of a deal at all.
The key here, is to look at the numbers. The numbers don’t lie. They never do. Compare the returns with your bank loan repayments. See how they match up. Make sure to include all associated costs; your maintenance fees, sinking fund and MLTA or whatever else you may be paying each month as part of your property investment. Putting the GRR amount next to your monthly commitment should show that you will at least make a profit or something very close to it, for the deal to be worthwhile.
For example, let’s say that you plan to purchase a property worth RM 600,000. The developers are offering you a 6% GRR on the property for 3 years. This means that each year, the developers will guarantee you RM 36,000 a year or RM 3,000 per month.
You’ll now need to compare this to your expenses. The unit you’re interested in is 1100 sqft and there’s a 0.20 sen maintenance fee and 0.10 sen sinking fund per sqft per month. This comes to RM 330. Add in your MLTA at RM 300 per month and your loan repayment of RM 2,500 per month, and your monthly commitment comes to a grand total of RM 3,130.
Comparing the two figures indicates that you only need to fork out an excess RM 130 each month. That doesn’t seem like too bad a deal at all. Especially if you’re hoping to reap the rewards of some sweet capital gains in 10 years. In this example, that 6% GRR is looking mighty fine! The numbers are good and the GRR deal isn’t just a lure to hook unsuspecting investors! Take my money, you say?
Well… maybe not just yet. Besides the numbers, there was one other thing that was mentioned. The GRR term. GRR isn’t offered indefinitely and in the example above, it was only offered for 3 years. This is another thing to keep an eye out for.
Be sure to do your homework on the area which you are buying your property is located. Sometimes the GRR is an over inflated price that might not be able to be matched once the term ends. RM 3,000 a month could be extremely farfetched for a 1100 sqft unit in Klang Valley, so you would need to consider if you feel you can find a tenant who will pay that much when the term ends.
It’s a well-known truth, that if something looks too good to be true, it often is. There are however, some hidden gems that are out there but they are few and far between. Always remember to do your research and consider every aspect of your purchase before making your final decision. GRR is just one of many important aspects that you should consider when buying a new investment property.